Fund tycoon Rajaratnam fights for less prison time

Thursday, 6 October 2011 00:00 - - {{hitsCtrl.values.hits}}

NEW YORK Reuters: Convicted hedge fund tycoon Raj Rajaratnam is fighting to the last minute to convince the judge who will decide his fate next week to imprison him for far less than the 19-1/2 to 24-1/2 years demanded by prosecutors.

At a hearing on Tuesday in Manhattan federal court, Rajaratnam’s lawyers disputed prosecutors’ descriptions of the Galleon Group founder as a “serial” offender deserving of one of the longest sentences for Wall Street insider trading.

Prosecutors have called for a prison sentence of about 20 years or more for the central figure in what they describe as the biggest probe of insider trading at hedge funds on record. Defence lawyers suggest a much lower guidelines sentence of between 6-1/2 years and 8 years, or less.

The main arguments revolved around sharp disagreement over Rajaratnam’s millions of dollars in illicit profits, or losses avoided in pulling positions in stocks — based on inside tips — that he knew would fall in value.

The issue is key to what punishment U.S. District Judge Richard Holwell will impose on Rajaratnam. The hedge fund manager is set to be sentenced on 13 October under nonbinding federal guidelines that take the “loss amount” into account and can enhance or reduce a prison term. Rajaratnam’s lawyer Terence Lynam argued that the guidelines refer to “gains resulting from the offence” and said the “court should isolate the gains from insider trading from other factors in the market” — one of the main differences between the calculations by the two sides.

“We don’t dispute that insider trading is a serious offence,” Lynam said as Rajaratnam sat in court looking straight ahead. “But the sentencing range overstates the seriousness of the offence here.”

Prosecutors and defence lawyers are so far apart on the issue that Holwell took the relatively unusual step of scheduling a separate hearing. At Rajaratnam’s two-month-long trial, which ended in May with a sweeping conviction on 14 criminal charges, the government put the figure at $63.8 million in dozens of stocks, including Goldman Sachs Group Inc, Google Inc and Intel Corp.

In court on Tuesday, a prosecutor said Rajaratnam’s insider trading gains could be as much as $72 million, but needed only to be $50 million to qualify Rajaratnam for an enhanced sentence under the guidelines.

Assistant U.S. Attorney Andrew Michaelson said government calculations showed about $30 million was made on mergers and acquisitions, $30 million from earnings announcements and $10 million in “loss avoidance” with the rest in other Galleon trades.